Quick Facts

Madagascar has performed relatively well in limiting its trade barriers, encouraging an agriculture industry that accounts for 80 percent of the economy. However, recent years’ progress on institutional development and economic liberalization has been uneven and often disrupted by political volatility.

Economic Freedom Snapshot

2016 Economic Freedom Score: 61.1 (down 0.6 point)

Economic Freedom Status: Moderately Free

Global Ranking: 87th

Regional Ranking: 9th in Sub-Saharan Africa

Notable Successes: Trade Freedom

Concerns: Property Rights, Corruption, and Regulatory Efficiency

Overall Score Change Since 2012: –1.3

Poverty remains a serious challenge, and efforts to promote private-sector job growth and business development are undermined by a weak judicial system and corruption. Poor governance exacerbated by political instability and a deteriorating rule of law continues to undermine prospects for long-term economic development.

Background

The former French colony of Madagascar, after decades of military coups, political violence, and corruption, has stabilized in recent years. Hery Rajaonarimampianina was elected president in January 2014 after years of political instability sparked by a 2009 coup. In January 2015, a general, Jean Ravelonarivo, succeeded Roger Kolo as prime minister when Kolo and his government resigned after less than a year in office. Given the country’s improved stability, international organizations and foreign donors have restored ties that had been severed following the 2009 coup. Madagascar’s economy is largely agricultural. Sitting just off the east coast of Africa, the country is highly vulnerable to natural disasters and weather shocks. The World Bank estimates that 92 percent of Malagasy live on less than $2 a day.

Significant corruption exists in nearly all sectors but is most pervasive in the judiciary, the police, taxation, customs, land, trade, mining, industry, environment, education, and health. Madagascar has continued the land tenure policies of the French colonial administration, with the presumption of state ownership of all land and the central government as the sole provider of legitimate land titles.

The top individual income and corporate tax rates are 20 percent. Other taxes include a value-added tax and a capital gains tax. The overall tax burden equals 9.3 percent of GDP. Revenue collection remains low because of the large informal sector and tax avoidance. Government spending amounts to 14.9 percent of total domestic output. The budget balance has been in deficit, and public debt equals about 35 percent of GDP.

Procedures for starting a business have been simplified, and no minimum capital is required, but the cost of completing licensing requirements remains 10 times the average annual income. The outmoded labor laws undermine development of a dynamic labor market. In 2015, the government again pledged to the IMF that it would reduce fuel price subsidies, which cost an estimated 1.5 percent of GDP per year.

Madagascar’s average tariff rate is 6.4 percent. Foreign and domestic investors are treated equally under the law. State-owned enterprises operate in the energy, air transportation, and other sectors of the economy. Despite some progress, the relatively high cost of financing hinders entrepreneurial growth, particularly for small and medium-size firms. Capital markets remain underdeveloped.